Japan's full of wind, but China could blow away the competition
HERE COMES THE FILTH
I think most people would agree with the observation that the air quality in Hong Kong this year seems to have improved. Certainly the flora and fauna on Lantau appear to be thriving: I see a lot more birds flying around, the local moo cows have not had to resort to the Fusion fruit counter for food, and I hear the pink dolphins off Tai O are faring a lot better with less pollution in the sea. The dirty rain stains on outdoor furniture have certainly been easier to clean off this year.
However, as China has got back into the full swing of industrial production, with some remarkable economic growth figures reported, so it appears pollution is on its way back. This can be observed on the very colourful real-time air pollution map at aqicn.org - green is good, brown is bad.
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Chinese officials in Beijing likely have vivid memories of the toxic blanket of smog that descended upon the city and surrounding industrial areas two years ago. The winter season means more coal-fired electricity for heating, leaving locals gasping for air and raising the heckles of the international community. The pressure is mounting for China to switch to alternative energy sources.
Chinese President Xi Jinping. Photo: Xinhua
CARBON NEUTRAL CHINA
My ears perked up when President Xi Jinping recently told the United Nations that China - the world's top emitter of greenhouse gases - will see peak output by 2030, and will achieve carbon neutrality by 2060. He was a little scant on details, but it was enough to give climate activists something to chew on, and analysts got to work figuring out ways in which this might be achieved. I started to think about which kind of energy suppliers might be most affected. On the downside, it would certainly be bad news for coal and oil. On the upside, there are a number of possibilities.
Energy analysts are probably right to focus primarily on wind and solar generation. At the moment, those renewables cannot be relied upon to provide a base load, as their output comes in bursts: solar electricity only when the sun shines and wind turbines only when it's breezy. A grey day or a still night means no power. But improving battery technology certainly has the potential to make them a credible, large component of the power grid.
Countries' plans for alternative energy are presented at the biannual United Nations Climate Change Conference. The next one, COP26, will be held in Glasgow in November, with 200 world leaders due to attend and present plans for how to limit global warming to well below 2 degrees Celsius above pre-industrial levels.
Last year, China accounted for 28 per cent of the global carbon emissions, nearly twice as much as the United States. It was revealing that this year through August, amid coronavirus shutdowns, China's CO2 emissions fell just 2 per cent year-on-year. By comparison, the US, Germany and Britain saw their emissions fall by 12-13 per cent, and global emissions fell -6.5 per cent. The drop was largely due to a reduction in ground transport rather than manufacturing activity, which explains China's steady emissions as its factories quickly reopened to churn out home-office electronics and protective medical gear.
BLOW LIKE THE WIND
China currently has a little over 220 gigawatts of wind power capacity, and industry analysts are speculating that between 36-45GW will be added each year, an increase in the order of 18-20 per cent each year. However, industrial firms in the wind power business see it differently.
Some 400 Chinese wind power developers and turbine manufacturers are calling for 3,000GW of installed capacity by 2060 to meet Xi's goal, which would require the installation of at least 50GW per year over the next five years, and then around 60GW annually after 2025. That would be a dramatic leap from the 26.8GW added in 2019. If borne out, the Chinese are going on a spending spree.
In Asia, there is likely to be another push for renewables as environmental, social and corporate governance considerations return to investors' minds when the winter smog descends. We can expect increasingly bold statements at COP26, especially from the Japanese who are constantly under fire for not dealing with their own pollution issues and are still backing coal adoption in developing Asia. This could be the opportunity for Japan's Minister for the Environment ShinjiroōKoizumi to announce a policy shift.
DIRTY JAPAN
Japan remains a major contributor of CO2 emissions, ranking about fifth for overall output and eighth on a per-capita basis. Like Britain, Japan is surrounded by wind and water, but unlike Britain, which generates 20 per cent of its electricity from wind onshore and offshore, Japan gets only 1 per cent of its electricity from the air. The Japan Wind Power association is targeting an installed base of 36GW of wind power by 2030, with 10GW being offshore - peanuts when compared to China's overall plans, but still an annual growth rate of about 20 per cent.
There are three wind turbine technologies to consider: fixed on land, fixed in water, and floating. China and the US have the world's largest installed bases of fixed wind turbines, and Britain leads in offshore turbines - fixed and floating. Floating wind turbines have advantages over those that are land based or fixed to the seabed, especially for countries like Japan which sit atop earthquake zones and lie in the path of typhoons. In the event of a tsunami, a floating turbine just bobs over the top of the waves. Maintenance is also easier, as floating turbines on pontoons can be swapped out and towed to a yard for service or repairs.
The Japanese are gearing up their wind turbine design game, having lagged both the Chinese and British. Firms are importing offshore wind turbine technology from Europe as well as developing their own, as they see a lucrative export growth market in Asia.
We may see Asia's wind business dominated by the Chinese when it comes to land-based wind farms and the Japanese for offshore installations. The business is likely to see sustained growth as the appetite declines for dirty power generation equipment that burns fossil fuels.
Neil Newman is a thematic portfolio strategist focused on pan-Asian equity markets
This article originally appeared on the South China Morning Post (SCMP).
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